Overview of Giordano International

Giordano International, a leading retailer and distributor of casual apparel and accessories, operates under several brand names including Giordano, Giordano Ladies, Giordano Junior, BSX, and Concepts One. The company is categorized under the Consumer Discretionary sector, symbolized by the Bloomberg ticker 709 HK. As of the report date, the company has a market capitalization of HK\$2,667 million, equivalent to US\$342 million, with a 3-month average daily turnover of US\$0.4 million.

Current Market Performance

Currently, the company’s share price stands at HK\$1.65, with a target price set at HK\$2.55, indicating a potential upside of 54.6%. Over the past year, the stock has experienced a 52-week high of HK\$2.73 and a low of HK\$1.46. The company has seen a decline in stock price with YTD performance down by 37.5%.

Strategic Initiatives and Financial Highlights

E-commerce Expansion

Giordano is aggressively expanding its online presence, with e-commerce sales contributing 10-12% of total sales. In the third quarter of 2024, the company saw an 18.6% year-on-year increase in online sales, primarily driven by strong performance in Mainland China. This growth is attributed to leveraging data insights to enhance online conversion rates and optimizing product mixes to appeal to younger generations, especially female customers, on platforms like TMall, Vipshop, and Douyin.

Operational Enhancements

The company is implementing quick-win initiatives aimed at improving operational efficiency and accelerating growth. While focusing on e-commerce, Giordano is also enhancing its physical store operations by using data analytics to boost offline traffic and conversion rates. Product innovation storytelling has been strengthened to attract more customers.

Feedback from Global Buying Conference

In August 2024, Giordano conducted its Spring/Summer 2025 global buying conference in Dongguan, China. The event showcased the latest products and collections not only to customers but also to global franchisees. Additionally, model stores were built in Dongguan with various setups to present seasonal merchandise, enabling franchisees to experience Giordano’s product collections through narratives.

Inventory and Financial Management

Inventory Management

Giordano is optimizing its best-selling merchandise to better meet market demands and improve operational efficiency. As of the end of the third quarter of 2024, the inventory level stood at HK\$630 million, up from HK\$501 million the previous year, due to increased shipments for the 11.11 shopping festival in Mainland China. The company anticipates high inventory levels in the fourth quarter as it prepares for the 2025 Ramadan and Chinese New Year.

Financial Performance

For the year ending December 31, 2024, Giordano is forecasting a net turnover of HK\$3,924 million, with EBITDA expected at HK\$811 million. Net profit is projected at HK\$279 million, translating to an EPS of 17.3 cents. The company maintains a strong balance sheet with cash and short-term investments amounting to HK\$800 million.

Stock Impact and Future Outlook

Five-Year Plan

Giordano’s five-year plan targets a high-single to low-double-digit revenue CAGR from 2025 to 2030, aiming for a net margin exceeding 10% by 2030. Key strategies include revitalizing the brand portfolio, enhancing digital acceleration, strengthening market presence in Greater China, and maintaining the ‘One Giordano’ philosophy.

Returning Excess Cash to Shareholders

Despite increased marketing and digital upgrade expenses, Giordano remains committed to its dividend payout policy, forecasting a 90% payout ratio from 2024 to 2026.

Valuation and Recommendation

UOB Kay Hian maintains a BUY recommendation with a target price of HK\$2.55. This target is based on a 10-year DCF model with a WACC of 12% and a terminal growth rate of 2%. The company is currently trading at a 9.4% 2024 dividend yield, based on a 90% dividend payout, or 9.0x one-year forward PE, which is approximately 0.5 standard deviations below its two-year historical mean of 10.4x.